Question: Salaries are a significant overhead and I am looking for ways to look after and retain staff, whilst also protecting the business for the future. What are my options?
Answer: You have a number of options. Some measures were introduced by the Government to tackle the pandemic. Other measures are available to you in the normal course of business.
1. JOB RETENTION SCHEME (FURLOUGH LEAVE)
The Coronavirus Job Retention Scheme was introduced by the Government in March in order to protect jobs. The scheme is available to all UK employers who have created and started a PAYE payroll scheme on or before 19 March 2020; have enrolled for PAYE online and have a UK bank account. Through the scheme, businesses can recover 80% of wage costs up to a maximum of £2,500 per month per employee. It is aimed at employees whose work has diminished or fallen away as a result of the crisis and who may have otherwise been made redundant, laid off or placed on unpaid leave.
In order to receive this grant from the Government, the designated employees must be “furloughed” for a minimum period of three weeks and, although they remain employed, they cannot work at all for the business whilst on furlough leave. It is possible, but not obligatory, for employers to top up the employee’s pay either to 100% or some other amount greater than the Government grant.
The grant is available for three months, from March to May and claims can be backdated to the 1 March so long as the furloughed employee was working and on the payroll on 19 March 2020. HMRC is in the process of setting up a portal to facilitate making claims under the scheme. It is hoped that this will be available by the end of April.
How do we select people for Furlough Leave?
You can select workers to be furloughed if they have no work to do or cannot do their job from home if their workplace is closed. If you have some work for employees to do, but not enough, you could consider consolidating tasks so that some employees continue to work for you and others are placed on furlough leave. It is important to remember that employees cannot work for you whilst on furlough leave.
Selecting for furlough leave must be fair and should not discriminate. Where more than one person could be furloughed or kept on to work, it is worth considering consulting with your employees to see if anyone would be prepared to volunteer for furlough leave, or rotating employees with some being furloughed and others working, and then switching. When furloughing employees, it is important to ensure that you have a written agreement with the employee, in order to vary their contract and reduce their salary. You should keep these documents for your records.
We made some redundancies in early March, can we still claim the grant?
If you made redundancies due to Covid-19 after 28 February 2020, you can reinstate the employees and place them on Furlough Leave instead. This is not mandatory if the redundancy has already taken place, but it is an option if you would like to protect jobs. This option is not available for employees who were made redundant prior to 28 February 2020. However, if you do this you need to consider any redundancy payments, pay in lieu of notice or holiday pay that has already have been paid and would need to be paid back. You could consider agreeing with the employee to defer repayments and deduct from future salary payments. If you did not make employees redundant but instead put them on unpaid “lay-off”, you can switch them to furlough leave and claim the Government grant, backdated to 1 March 2020.
Can part time workers or employees working irregular hours be furloughed?
Yes. The scheme covers part-time workers as long as they were on the payroll at the end of February 2020. The reference salary for claiming the grant will be their normal monthly salary.
Employees working irregular hours can be paid by reference to their previous average earnings. The method of calculating this will vary depending on when the employee started with your business and how long they have worked for you. The Government website provides further details on this.
What do I do if someone refuses to be furloughed?
Ideally businesses should try to gain agreement to furlough. This is why seeking volunteers can be a good idea where possible. If an employee refuses, you should first try to understand their concerns. It may be that they simply cannot afford to take the pay cut. Rotating staff on furlough leave and or asking staff to reduce their working days and take holiday might be possible alternatives. But it is worth remembering that the Government scheme is designed to protect jobs, so if there really are no other options, you could be left with no alternative but to dismiss by reason of redundancy. In this event, as is always the case with redundancy, you would need to ensure that you have undertaken a fair selection process and follow the correct procedure. If you think that redundancies are inevitable in the future anyway, it might make sense to carry out a selection process for furlough, using a similar one to a redundancy selection process.
However, it is likely that faced with these exceptionally challenging times, most employees will be grateful for the opportunity to protect their job and take furlough leave.
The Government’s website has full details on the Job Retention scheme.
Can I make people redundant instead of furloughing them?
The aim of the Job Retention Scheme is to help employers who would otherwise make redundancies, protect jobs. Additionally, as part of a redundancy process there is a requirement to explore alternatives to redundancy. Your employees could therefore see this as unfair whilst the Job Retention Scheme is in place. If you decided to make redundancies regardless, you should ensure that you fully consult and keep good records to demonstrate why you decided to take this option instead of furloughing staff.
What about after the Job Retention Scheme has ended?
The Job Retention Scheme is currently set to be in place until the end of May. Once it has ended, whether in May or later if the Government decides to extend it, businesses will need to consider their position at that time. It may be that employees will be able to return to work, but if there is not enough work, or the business has suffered in some other way financially, redundancies may be the only option. If so, the correct procedure should be followed, including formal notifications to “at risk” staff; using appropriate selection methods; consultation meetings (collective consultation if more than 20 employees are to be made redundant); exploring alternatives to redundancy; and making appropriate statutory payments.
3. WHAT OTHER OPTIONS ARE THERE FOR REDUCING COSTS?
Lay-offs and short-time working and temporary reductions in pay
If the Job Retention Scheme is not possible, perhaps when the Government grant has ended, then other possibilities include short time working (where employees are given reduced work for correspondingly reduced pay) – or lay-offs (where employees retain their employee status but are not working and therefore not receiving pay whilst there is no work). As with furlough, the employee must agree to the change, unless there is a lay off or short time working clause in their contract, and even then, it would be sensible to take advice.
As with all changes to contract terms, particularly when resulting in a reduction in pay, consulting with employees is required and collective consultation rules will apply if there are 20 or more employees affected by the change.
A temporary reduction in pay might be in the form of a reduced working week; reducing pay for the same hours or reducing pay with a commitment to repaying the lost wages once the crisis is over. Options should be considered carefully alongside the business’ future financial prospects and again, any reduction in salary must be agreed in writing with each employee. It is also worth noting that employees cannot be paid less than the National Minimum Wage.
Taking annual leave
Asking employees who have been placed on furlough leave or unpaid leave to take holiday can increase the employee’s earnings (holiday taken whilst on furlough leave must be paid at the employee’s normal daily rate) as well as protect the business in the future, although paying out holiday at full salary during furlough leave might not be the best option for cash strapped businesses. Depending on the wording in employment contracts or other policies, employers are generally allowed to refuse a request to take annual leave at a particular time, as long as the employee can take the holiday at another time that works for them and the business.
In response to this crisis, the Government has passed regulations allowing employees to carry over up to 4 weeks of holiday into the next two annual leave years, where they have been unable to take holiday due to the Corona virus.
Additionally, businesses can request that employees who are still working, even if at home, take some holiday. Whilst it doesn’t address any current cash flow issues, it does help to prevent a resourcing problem further down the line and ensures that staff is available to support the business when things return to normal.
It is possible for employers to instruct employees to take holiday during this time. Generally, the rule is that notice should be given which is double the length of the holiday to be taken. However, it is always important to check employment contracts to ensure there is no wording that prohibits this. If an employee is off sick, they cannot be compelled to take holiday.
Temporary freeze on salary/bonus review
Many organisations have agreed to postpone the annual salary and/or bonus review until the economic picture is clearer. Entitlement to a salary increase or bonus is often non-contractual and is therefore likely to be a fairly straightforward decision to implement as long as time and care is taken in communicating the reasons for the decision to staff. In the current climate, it is likely that employees will understand. However, it is important that contracts of employment are checked carefully, to ensure that there is no contractual entitlement to an annual increase in pay or a bonus.
Deferring or cancelling new joiners
Many firms have put a freeze on recruitment. This is perhaps a sensible decision at the moment. But what do you do if you have already made offers to people? If circumstances have changed and business now no longer requires the new hire, then you could agree to postpone the future employee’s start date. This may be difficult if the employee has already resigned from their current employer, or if the contract has been signed and gives a start date, but it is worth having a conversation. It might be that a deferred bonus of some sort could soften the message.
A tougher, but perhaps necessary decision might be to withdraw the offer or terminate the contract. If the offer has not been accepted, withdrawal is a possibility, particularly if the contracts have not been signed. If the contract has been agreed and signed, it is likely that you would need to pay out the notice period stated in the terms and conditions of employment, in order to terminate.
The most effective way of obtaining an employee’s agreement to any type of change is to maintain a clear line of communication, and as far as possible, be honest. Talking to employees about the financial impact of the current climate on your business; explaining the challenges you are facing and highlighting the costs that need to be saved and why, are all likely to encourage buy-in and a collective effort to help your business protect its future.
This blog was prepared by Kindleworth LLP. Kindleworth LLP is a managed service provider to the legal sector. They are not employment lawyers and this blog should not replace legal advice available from employment lawyers.